Full Judgment Text
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PETITIONER:
M/S. KHAN SAHEB M. HASSANJI & SONS
Vs.
RESPONDENT:
STATE OF MADHYA PRADESH
DATE OF JUDGMENT:
19/11/1962
BENCH:
ACT:
Mining Lease-Realisation of royalty at enhanced rate under
contract-Constitutional Validity-Agreement, if void--Mininy
Rules, 1913, r. 50-Mines and Minerals (Regulation and
Development) Act, 1948 (LIII of 1948), s. 4-Mineral
Concession Rules, 1949-Constitution of India, Art. 31(1).
HEADNOTE:
The appellants took an assignment of a mining lease for
extracting coal in respect of 189.76 acres of land. They
were anxious to acquire other lands adjacent to the
aforesaid area from their respective owners. The transfers
in favour of the appellants could not take place without the
sanction of the State Government. After protracted corres-
pondence and negotiations, the Government agreed to grant
the necessary sanction subject to the condition that they
took a consolidated lease in respect of the whole additional
area at an enhanced rate of royalty. The appellants entered
into an agreement with the Government on January 11, 1949 by
which the rate of royalty payable to Government was raised
from Rs. 5/- to Rs. 10/- per ton. Though no formal lease-
deed was executed, the appellants worked the mines with the
permission of the Government during the period October 27,
1947, to June 30, 1949 and paid a sum of Rs. 40865/- includ-
ing interest, by way of royalty. They paid the aforesaid
sum under protest in February-March, 1960. The plaintiffs-
appellants brought a suit before Additional District judge
for a declaration that they were not bound by the terms of
the agreement dated January 11, 1949 and were not liable to
pay to Government any sum in excess of that fixed by the
lease of 1923 and by the lease of January 21, 1944, and also
claimed other consequential reliefs. The suit was decreed
on contest by the Government. On appeal by the defendant-
respondent, the High Court reversed the judgment and decree
of the trial court and dismissed the suit with costs.
Held, that from the agreement dated January 11, 1949, it is
clear that the Governor was in the position of the lessor,
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hence, even assuming that the Mineral Rules of 1913 had
statutory force and applied to the instant case, the
Governor having been the grantor of the lease it must be
presumed that he decided that the revised terms were in the
interest of the State, and, therefore, the revised terms of
the lease were binding on the parties; further ultimately
the appellants having conceded that the rules were not
statutory, the agreement aforesaid was not void.
The Mineral Concession Rules, 1949 came into effect on
October 25, 1949, having no retrospective effect and the
agreement in question was finalised in January 1949. There
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were thus no such Rules in existence which could have been
contravened.
Held, further, that since the payment to the Government was
realisable under the terms of the contract which is not
vitiated, it could not be said that the State deprived them
of any property within the meaning of Art. 31 (1) of the
Constitution.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 645/1961.
Appeal from the judgment and decree dated April 20, 1957, of
the Madhya Pradesh High Court in First Appeal No. 181/52.
Hardayal Hardy, S. AT. Andley and Rameshwar Nath, for the
appellant.
B. Sen and 1. N. Shroff, for the respondent.
1962. November 19. The judgment of the Court was delivered
by
SINHA, C. J.-This appeal on a certificate granted by the
High Court of Madhya Pradesh at Jabalpur on April 16, 1958,
under Art. 133 of the Constitution, is directed against the
judgment and decree of that Court in First Appeal No. 181 of
1962, reversing those of the Additional District judge,
Chindwara, in Civil Suit No. 3-A of 1951, decided on
September 25, 1952, by which the trial Court had decreed
the plaintiffs’ claim for Rs. 408651-and interest.
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It is necessary to state the following facts in order to
bring out the points in controversy between the parties.
One Haji Syed Zahiruddin of Bhopal held a mining lease-Ex.
P-2-dated May 29, 1923 in respect of 189-76 acres of land in
the district of Chindwara, for extracting coal. The
appellants took an assignment of that lease by Ex. PI dated
September 4, 1940. There were coal bearing areas adjacent
to the area covered by the lease aforesaid. The appellants
were anxious to acquire those adjacent collieries from their
respective owners. The transfers in favour of the
appellants could not take place without the sanction of the
State Government. After protracted correspondence and
negotiations, the Government agreed to grant the necessary
sanction to the transfer of those adjacent lands to the
appellants subject to the condition that they took a
consolidated lease in respect of the whole additional area
at an enhanced rate of royalty. The appellants entered into
an agreement with the Government on January 11, 1946 (Ex.P3)
by which the rate of royalty payable to Government was
raised from Rs. 5/-to Rs. 10/-per ton. Though no formal
lease deed was executed, the appellants worked the mines
with the permission of the Government during the period
October 27, 1947 to June 30, 1949. In respect of the coal
thus extracted, the appellants paid to the Government the
sum of Rs. 40865/-, including interest, by way of royalty.
The plaintiffs paid the aforesaid sum under protest in
February-March, 1960.
The plaintiffs commenced the present action in February
1951, for a declaration that they were not bound by the
terms of the agreement dated January 11, 1949, aforesaid,.
and that, therefore, they were not liable to pay to
Government any sum in excess of that fixed by the lease of
1923, and.; by the lease of January 21, 1944, in respect of
lands transferred to them. They also. claimed an
injunction against
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the defendant, the State of Madhya Pradesh, which was the
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sole defendant,, now respondent. There wag also a prayer
for refund of the said amount of Rs. 40865/- plus interest
amounting to Rs. 1985/from the date of payment of those
several sums aggregating to Rs. 40865/-. Interest pendente
lite and future interest at 6 per cent on the decretal
amount was also claimed.
The contentions raised on behalf of the plaintiffs in
support of their claim were that the agreement aforesaid was
void as it was in contravention of r. 50 of the Mining Rules
of 1913, as also that the same was in contravention of s. 4
of the Mines and Minerals (Regulation and Development) Act
(XIII of 1948). It was also contended that a representation
was made by the Government in the correspondence that passed
between the parties that Government was going to adopt a new
policy in respect of mining leases, including grant of
leases at enhanced royalty. The agreement, the plaintiffs
further asserted, had been entered into under the influence
of that misrepresentation and was, therefore, not
enforceable against them.
The suit was contested by the Government on the ground that
the Mineral Rules of 1913 had no binding effect after the
Constitution Act of 1935, so far as the Provinces were
concerned; those Rules were mere departmental instructions
for the guidance of subordinate officers of the Government;
and that the Government was free to make its own bargain in
respect of fresh leases. It was also contended that the
Mines and Minerals (Regulation and Development) Act of 1948,
read with the Rules made thereunder, did not apply to the
leases in question as these Rules came into force later.
The Government also denied that there was any
misrepresentation made by Government to the plaintiffs,
though it was true that Government had intended to
promulgate fresh rules
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which envisage revised scales of royalty, but which
ultimately did not materialise. It was, therefore,
contended that the plaintiffs had no cause of action for the
reliefs claimed in the plaint.
The learned Additional District judge, Chindwara, by his
judgment and decree date September 25, 1952, decreed the
suit with costs holding that the plaintiffs were entitled to
the declaration ;,,ought by them, as also to the consequen-
tial relief of refund ’of the amount paid by them tinder
protest, as aforesaid, namely, the sum of Rs. 40865/-
together with the sum of Rs. 992/8/- on account of interest
at 3% per annum up to the date of the suit, as also interest
pendente lite tip to the date of realisation at the same
rate of 3%.
On appeal by the defendant, the state of Madhya Pradesh, the
High Court reversed the judgment and decree passed by the
trial Court and passed a deeree dismissing the suit with
costs throughout. The High Court held that the Government
was not bound by the Rules of 1913, which had no statutory
force, and that the Rules of 1949 made under the Act of 1948
aforesaid did not apply to the transaction in question,
because they had no retrospective operation. The High Court
also held that there was no misrepresentation by the
Government and that the plaintiffs were anxious to enter
into the agreement in order to start their mining operations
to take advantage of the High market in respect of coal, and
that they entered into the agreement with their eyes open
and without any vitiating influence. The appellants applied
for and obtained the necessary certificate from the High
Court. That is how the matter is before us.
In this Court it was strenuously argued on behalf of the
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appellants that the Rules of 1913 were in terms imperative
and had statutory force which bound the State Government,
and that any lease or
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agreement entered into between the parties in violation of
the terms of these Rules would be wholly void. It is
contended on behalf of the appellants, that the Government
was not entitled to recover the amount at the higher rate of
royalty from the plaintiffs, and that their suit was well-
founded in law. But it was argued on behalf of the
respondent that those rules were promulgated by the
Governor General in Council, under the sanction of the
Secretary of St-ate for India in Council, and as such they
were binding on the officials of the Government as
departmental instructions, but were not binding on the
Government itself In our opinion, this contention is: well-
founded. Rule 1, which runs as follows, itself makes it
clear that the Government concerned may make an exception to
the general rule laid down in the rule
"1.No license to prospect for minerals or
lease of. mines and minerals can be granted by
any Local Government otherwise than in
accordance with these rules, except with the
previous sanction of the Secretary of State
for India in Council, or with that of the
Governor-General in Council under any general
or special authority which he may have
received in’ this behalf from the Secretary of
State in Council."
The general rule is that the Rules have to be followed by
the officials of the Government in the matter of granting
licences to prospect for minerals, or leases of mines and
minerals. But exception may be made with the previous
sanction of the- rule making authorities aforesaid. This
position continued in law until the Government of India Act
of 1935 came into operation. As a result of the
constitutional changes effected by that Act, the Secretary
of State and the Governor-General had to be substituted by
the Governor with effect from April 1, 1937. From that date
it would be the
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Governor who would be empowered to make the exceptions to
the general rule laid down. In this case, it is clear from
Ex. P. 3--the agreement dated January 11, 1949 that the
Governor was in the position of the lessor. Hence, even if
we assume that the Rules had statutory force and applied, to
the instant case, the Governor having been the grantor of
the lease it must be presumed that he decided that the
revised term-, were in the interest of the State, and,
therefore, the revised terms of the lease were binding on
the parties. Though in opening the appellants’ case their
counsel was vehement in the assertion that the Rules of 1913
were statutory, he was unable to point out the statutory
source of it. Ultimately, he had to concede that the Rules
were not statutory. That being so, there is no force in the
contention that the agreement of .January 11, 1949 (Ex. P.
3.) was void.
In this connection it is necessary to consider the
alternative ground of attack based on the provisions of the
Act of 1948 and the Rules made thereunder. The Act came
into force on September 8, 1948, and the Rules, called the
Mineral Concession Rules, 1949, were promulgated under s. 5
of the Act. But these Rules came into effect on October 25,
1949. These rules apparently have no retrospective effect.
Section 4 of the Act is as under :
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"No mining lease shall be granted after the
commencement of this Act except in accordance
with the rules made under this Act."
Hence, any mining lease granted on or after October 25, 1949
will have to conform to the Rules aforesaid. But the
agreement in question was the result of negotiations between
the parties, extending over several years and was finalised
in ..January 1949. The appellants, with the permission of
the Government, carried on mining, operations on the terms
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insisted upon by the Government, and for the period for
which the ’royalty was realised from the appellants there
were no such Rules in existence, which could be said to have
been contravened. Hence we are not concerned with the
effect of the Rules which were promulgated in 1949 and came
into effect as already stated, on October 25, 1949. We need
not, therefore,, stop to consider what the legal position
would have been if an agreement like the one before us were
questioned with reference to its operation on and after
October 25, 1949.
The only other ground on which the enforceability of the
terms of the agreement has been questioned is that there was
a misrepresentation by Government to the effect that it was
going to enhance the rate of royalty all round, and that it
was under the influence of that belief that the appellants
entered into the agreement in question. It is a little
difficult to appreciate this ’ground of attack. The
agreement is not questioned on the ground that there was any
undue influence or coercion exercised by the grantor in
insisting upon the more onerous terms under the agreement.
As pointed out by the High Court, the appellants were in a
hurry to take the additional area and work the coal mines on
terms which were mutually agreed between the parties. It
was not alleged that there was any mutual mistake which
could be said to have vitiated the agreement. But simply
because the draft amendment to the Mining Rules published
for inviting objections from the public on July 12, 1947
(vide Ex. D13) was not finalised would not afford any cause
of action to the plaintiffs. They, with their eyes open and
after thoroughly discussing the matter between themselves
and the Government, had entered into those terms of
agreement. Those terms may be more onerous than any other
lease granted to other lessees, but that would not vitiate
the contract between them.
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There was a faint attempt made on behalf of the appellants
to put their objections on a constitutional basis. It was
contended that the terms imposed upon the appellants by the
State would amount to deprivation of property without the
authority of law. It is manifest that this ground of attack
is wholly devoid of any force because the State has not
deprived them of any property. What they have paid to the
Government was realisable under ,the terms of the contract,
which on the findings recorded above is not vitiated. Under
the agreement which we hold to be enforceable, the defendant
may have struck a hard bargain but that cannot be brought
under the prohibition of Art. 31 (1) of the Constitution,
even assuming that the Constitution applied to the
transaction in question.
As all the grounds of attack urged in support of the appeal
fail, it is hereby directed that the appeal be dismissed
with costs.
Appeal dismissed.
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